Penny Fractions: Spotify’s Revolutionary Plan to Support One Million Artists

Hello, Penny Fractions readers! There are a few quick projects I want to highlight this week. Long-time music journalist Todd Burns started a newsletter called the Music Journalist Insider, which I’d suggest reading. Avalon Emerson, who helped found the Buy Music Club last year, is performing in Los Angeles this Friday to help raise some money for the project’s relaunch. I guess I should mention that Avalon and Todd are both Penny Fractions readers but I figured I might as well mention a couple of cool reader projects instead of asking y’all to promote the newsletter for a change. Though, if you do enjoy the newsletter, please do tell a friend about it!

Spotify’s third-quarter results this year were a cause for celebration. The company exceeded expectations by hitting nearly 250 million users (113 million of those are paying) and actually turned a profit. The company’s reports continued to mention its “two-sided marketplace” strategy, where it wants to both provide an endless library of music for listeners and allow for artists to be able to build up a career through the company’s suite of tools. This week, I want to focus on a particular aim Daniel Ek mentioned during Spotify’s 2018 Investor Day and reiterated in this Q3 report (emphasis mine): “the goal of our marketplace strategy is to harness Spotify’s ability to drive discovery to connect artists with fans on a scale that has never before existed with the goal of enabling 1 million artists to live off of their work.”

I’ve remarked before that this goal is pure executive fluff talk that is said simply to inflate the perceived importance and value of the company. The rest of this newsletter shouldn’t be confused with me accepting the reality of that absurd premise. However, all year I’ve been thinking about how Spotify would be able to sustain the lives of one million artists if it were to grow to such a size. Earlier this year, authors Leight Phillips and Michal Rozworkski published a book called People’s Republic of Walmart: How the World’s Biggest Corporations are Laying the Foundation of Socialism, which argued rigorous planning helped create the logistical empires from the likes of Amazon and Walmart. I’d hardly assess Spotify as a company with the same level of scale or logistical expertise as either company, but I figured if a company like Spotify wants to propose such a grand vision, then let’s see how that may play out!

Daniel Ek’s quote about one million artists surviving off of Spotify did come with some concrete numbers. The company’s CEO mentioned that by the end of 2017, nearly 22,000 musicians were under what the company deemed as ‘top-tier earners’, up from 16,000 in 2015. (Now what exactly “top-tier” means wasn’t perfectly defined but going forward I’m going to assume it would imply that these are artists who can indeed make a living solely off of the Spotify platform.) A similar increase in 2019 would put Spotify’s top-tier musicians at around 30,000, which is certainly nowhere nearly one million but still shows some progress. Tim Ingham, an individual who is never afraid to bring out a calculator, ended up breaking down the numbers and identifying that Spotify’s top-tier musicians accounted for 0.733% of the 3 million artists who’ve put music on the platform in 2017. Thus, my own back-of-the-napkin math resulted in saying that by the time Spotify hits one million artists who are sustaining themselves the platform, there should be around 400,000,000 million musicians using the platform. Or roughly 5% of the global population! 

However, that’s only one side of this “two-sided marketplace”. Even with a solid third quarter, Spotify ARPU (Average Revenue Per User) continues to tumble much to the chagrin of record label executives. Yet, at the time that Spotify with 158 million listeners and 71 million paying into the premium plan, it was only able to fully support 22,000 top-tier creators. Now, when doing some extremely rough math (which completely ignores expansions into non-Western markets that would certainly lead to a declining ARPU, for example) I find that around 7.2 billion people would need to be Spotify listeners and over 3 billion would need to be paying customers. One can’t say that Daniel Ek isn’t ambitious! Spotify’s lofty goal could potentially require the entire globe to contribute towards the platform in order for it to pay a living wage to one million artists. Now, if the ability to sustain the lives of a million artists would effectively require an entire planet’s worth of people paying into a single system, perhaps that might require a slight rethinking of how Spotify functions.

As of December 31, 2018, Spotify employed 4,165 full-time employees. It is much more difficult to imagine the exact extent of upward-scaling necessary for the company to serve music to nearly every person on the planet. It would certainly be easy to see its workforce increasing by tens of thousands as it reaches the physical limits of potential customers. The company is currently based in 20 countries but it’d be reasonable to expect a rather large uptick in spaces that house Spotify content if roughly 5% of the globe is uploading music to the platform. Now how exactly would a company at that scale not only work amongst itself but also all of the local and regional players is something I guess we’ll see play out right now in India, one of the world’s largest companies.

If Spotify is providing enough income to one million artists, I’d have to imagine that some of these artists would be able to enjoy a few more features than simply one dashboard with a few analytics. While growing to such a size, Spotify could look to introduce features like live streaming, Twitch-like donations, etc. This is how Tencent Music, the Chinese-based entertainment company that did a stock-swap with Spotify a couple of years ago, makes a solid amount of its revenue. Once Spotify starts seeing hundreds of millions of artists, it’d be hard to imagine them all being satisfied with only receiving a meager check for a few music streams. Even a modest 100,000 artists making a living off of a single platform would probably need a rather different set of features than what is offered now. Substack, the newsletter platform, even hinted towards offering users free health care, so when will that along with other benefits start being incorporated into Spotify pitch decks?

Last year, Liz Pelly wrote for The Baffler where she contrasted the language used by Spotify and Uber and centered on this false narrative of “independence” that both companies offer. One could certainly argue that if an artist is making a living wage on Spotify, then perhaps they’re seeing similar income from other platforms and may only need partial wages from Spotify, YouTube, Apple Music, etc. to strap together a living. Yet, when will artists start to realize that not only are they the anchor labor that powers these platforms but also that their desire for collective demands should be heard not just at Spotify, but also at Apple, Amazon, YouTube, and all major music platforms?

Via the American Federation of Musicians, or perhaps even via coalitions of international music trade unions, artists could start to do the math and ask for specific protections and resources. This is a fundamental model that was designed back in the 1940s between the American Federation of Musicians and record labels to establish labor peace. It led to the creation of a fund that would use industry profits towards free public concerts that paid a union wage for underemployed workers.

In the 21st century, when large international firms are the primary platforms for music distribution, the scope of asks could be far bigger. Demands like health care for musicians in countries where that isn’t provided, funds towards equipment, resources to allow musicians to pursue their careers, and perhaps the allocation of funds back towards housing could all be made. The current model of music labor is highly atomized, and when positioned between people who need to negotiate with labels, there is little room to conceive of a collective struggle. Yet, if a critical mass of artists is capable of making a living off a platform or a set of them, then suddenly they will realize that they can make the same demands that any worker makes to his or her boss.

Spotify’s million artist vision could allow for similar forms of solidarity on a mass level. Musicians can organize for better business practices but also rally their own fans to support and endorse such goals. Suddenly, this kind of alliance could very well threaten the basic paradigm of how a for-profit business is meant to operate when squeezed on both sides of its two-sided marketplace. If fans don’t feel their favorite artists are not being treated fairly by the platform they use then there is a deeper reach to coordinate the desired change. Now, one would rightfully ask how a platform used by the entire globe would do that, which is where I’ll admit this thought exercise might have to run its course. Yet, if Spotify’s going to one day sustain the lives of a million artists, I would expect those musicians to have a few words for their new boss.

This week, I just wanted to give a bit of support to Stevie Knipe from the band Adult Mom, who over the weekend went public on Twitter with a series of complaints about the band’s former record label Tiny Engine. They’re seeking back their masters and have accused the label of not paying them and other acts on the label. I don’t often mention singular artist struggles but it felt worth highlighting that the “indie” space is no more immune to questionable record label practices than the major-label side of music. (Also, Kickstarter United still isn’t a recognized union!)

Jim Cramer: Spotify has ‘no bear case’ after ‘game-changer’ quarter - CNBC 

I just wanted to state that Spotify’s best quarter only put the company barely back on the ground floor it was at when it first debuted, which does indicate to me that there’s a real ceiling of success with this particular streaming service.

The Changing Economics Of Electronic Music: Part 2 - Resident Advisor 

Do check out the second part of this feature because it continues to be an excellent deep dive into the rather messy economics of electronic, and more broadly, contemporary music at the ground level. 

The State of Music-Tech Startups, Through the Lens of Its Top Investors - Water and Music 

I found this oddly interesting mainly because I didn’t realize just how many of these companies are nibbling at the edges of this industry and not really taking large swings at the core issues. Much of that can be accounted for the fact so many startups need to appease so many players before getting a foot in the market but, even still, this produces a rather limited conceptual space for new music ideas. If everyone is ultimately looking to just build upon and not potentially jettison away from standard industry practices. 

Purged: How a failed economic theory still rules the digital music marketplace - 5Mag

I gotta give credit to Jay Gilbert’s newsletter Your Morning Coffee for surfacing this story! Even though I find the A.I. aside in this piece rather annoying, the basic premise that many parts of the music industry incorrectly assessed their vision of the future (according to Anderson’s theory) is certainly on point. 

Tencent Music Beats Analyst Expectations in Rebound Q3 Earnings - Billboard 

Tencent’s growth can be connected to towards its increase in customers willing to buy into its subscription services. The contrast between Tencent now trying to build up its subscription base on top of its other models for making money is so apparent compared to western services that still appear committed towards subscriptions and only hint at other ways of monetizing content. Certainly, that will change in the future but I’m curious to see when that shift will occur. 

The music industry shouldn’t kid itself: Piracy was never killed by streaming… but it might be more valuable than you think. - Music Business Worldwide 

This op-ed by Andy Chatterley is absurd. The numbers he uses to show the relevance of piracy and all of the money being lost in the industry truly feels like he’s just pulling numbers out of a hat and hoping the largest one will send a shiver down an executive in an ill-fitted navy suit jacket’s back. Now, why would Chatterley, founder of the anti-piracy startup MUSO, want people to be scared of piracy in 2019? I couldn’t imagine that has anything to do with promoting his business. That just makes too much sense.

The Penny Fractions newsletter arrives every Wednesday morning (EST). If you’d like to support it, check out the Patreon page or follow it on Twitter. The artwork is by graphic designer Kurt Woerpel whose work can at his website. The newsletter is copy edited by Mariana Carvalho, with additional support from Taylor Curry. My personal website is davidturner.work. My current job is Curation Analyst at SoundCloud, so all thoughts here represent me, not my employer. Any comments or concerns can be sent to pennyfractions@gmail.com.